Ally Bank, Formally Known as GMAC, to Pay Fannie Mae $462 Million Over Bad Mortgages, BoA Sued by Allstate

Ally Financial Inc, the lender formerly known as GMAC, on Monday said it agreed to pay $462 million to Fannie Mae (FNMA.OB) to avoid having to repurchase poorly underwritten mortgages sold to the housing finance giant.

Ally, which is majority-owned by U.S. taxpayers, said the agreement releases its Residential Capital LLC mortgage unit from any liability related to bad underwriting on $292 billion worth of loans sold to Fannie Mae, itself about 80 percent owned by the government.

Residential Capital owns GMAC Mortgage and Ditech Funding.

Ally, which is expected to go public next year, announced a smaller settlement with Freddie Mac (FMCC.OB) in March. Resolving questions about its potential liability could help Ally attract investors.

The lender, which is 56 percent owned by the U.S. government, said the agreements reduce the risk in its mortgage operations going forward.

Fannie and Freddie collected more than $9 billion from banks during the first three quarters of the year. At the end of September, another $13 billion in requests hadn’t been paid, including more than $4 billion that have been outstanding for more than four months.

So now we have a payoff to Fannie & Freddie, much less than the actual bad loans with a release from liability? Are Fannie and Freddie yet another garbage dump for Wall Street?

Allstate said that starting in 2003, Countrywide quietly decided to boost market share by approving any mortgage product that a competitor was willing to offer, in a "proverbial race to the bottom." It said Countrywide then passed on the added risks to investors who bought debt backed by the mortgages.

"Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default," said the 150-page complaint filed Monday in Manhattan federal court.

They also sued the Countrywide executive officer, Angelo Mozilo. Good for them! There has been almost no consequences for the outright fraud perpetuated on other businesses and the American people.